Energy

In the area of energy policy, the EU faces the challenges of safeguarding energy supply, creating a competition-based internal energy market and at the same time reducing greenhouse gas emissions caused by the use of fossil fuels. cep examines EU proposals for the deregulation of the internal energy market, the diversification of energy supply, increasing energy efficiency, promoting renewable energy sources and establishing trans-European energy networks (TEN-E).

Security of the Electricity Supply (Regulation)

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The EU wants to oblige Member States to undertake closer regional cooperation in the avoidance and management of electricity crises. In cep’s view, this could avoid severe economic damage in Member States in the event of an electricity crisis. The duty to manage electricity crises primarily with measures which are compatible with the internal electricity market also facilitates efficient pricing on the wholesale electricity market.

The “governance mechanism” aims to enable coordination of the energy policy measures of the Member States and the EU, and tighten planning and reporting duties. The EU Commission’s proposed Regulation creates clarity and reduces excess red tape. However, its authorisation for the Commission to design a financing platform for renewable energy projects is contrary to EU law.

The EU Commission wants to strengthen competition on the wholesale electricity markets. Cross-border power flows in the EU will also be increased. In cep's view, banning Member States from intervening in price formation on the wholesale electricity markets increases competition amongst electricity producers.

The recast of the Electricity Market Directive aims to give consumers a stronger influence on the retail electricity market and generally protect the market against state intervention. In cep’s view, however, it is misguided for electricity suppliers to have to offer tariffs with dynamic electricity prices when there is no corresponding demand.

The share of renewable energy in overall EU energy consumption is to increase to 27% by 2030. This is set out in the EU Commission’s Proposal for a Directive to promote energy from renewable sources (“renewables”) post-2021. In cep’s view, the Proposal allows Member States too much scope for developing inefficient and anti-competitive renewables support schemes.

The EU Commission wants to ensure that the energy efficiency of buildings is further increased. The proposed amendment to the Energy Performance of Buildings Directive is intended to remove "cumbersome" provisions and speed up the energy-related renovation of existing buildings. In cep's view, linking financial support for building renovation to the energy savings achieved, is an improvement on the status quo.

The Energy Efficiency Directive of 2012 is to be amended. A stricter, and now also binding, energy savings target of 30% by 2030 will apply in the EU. In order to achieve this target, the Member States will be subject to detailed energy savings obligations. Thus, they will also have to ensure that the energy consumption of end customers falls by 1.5% per year post 2020.

The EU Commission will allocate Member States with national targets for reducing greenhouse gases (GHG) in sectors not subject to EU emissions trading (ETS) (e.g. transport and agriculture). It also proposes flexibility options which Member States can use to achieve their national targets.

In its Communication, the Commission sets out how heating and cooling can be made more efficient in the EU. In cep's view, the proposed rules on energy efficiency and the use of renewables are unsuitable for reducing CO2 emissions in a targeted and cost-effective way. Instead, all forms of heating and cooling should be included in the EU Emissions Trading System.

The EU Commission wants to facilitate the cross-border use of liquefied natural gas (LNG) and gas storage facilities in order to complete the internal gas market and increase security of supply. For this purpose, cross-border gas infrastructure will be built and cooperation with third countries improved in order to remove barriers to global trade in LNG. In cep's view, this will increase security of supply for Member States that do not have their own LNG terminals and gas storage facilities.

In future, the European Commission wants to ensure the compatibility of intergovernmental agreements with EU law by way of "ex-ante checks" on energy agreements between EU members and third countries. In cep's view, however, this would constitute drastic intervention in the sovereignty of the Member States.

Disruption to the gas supply in the EU should be prevented by better regional coordination. To achieve this, Member States would, under plans put forward by the EU Commission, have to draw up binding risk assessments and develop preventive action and emergency plans, no longer nationally, but jointly with other countries in their region.

The strategic plan to support energy technology (SET Plan) is to be refocussed on the priorities of the Energy Union. The EU Commission criticises the existing SET Plan for the fact that its technology-specific research support is failing to take sufficient account of the synergies between the various energy technologies. It therefore wants to replace this "technology-specific approach" with an "energy system approach".

The current support for electricity generation by way of photovoltaics is failing to meet the European Union's climate and energy policy targets: It is not resulting in a reduction in carbon dioxide or in lower electricity prices. Neither has security of supply increased. In addition, it has not succeeded in developing an internationally competitive industry for the manufacture of photovoltaic modules in the EU.

The EU Commission wants to improve consumer information by rescaling energy efficiency labelling. The EU label, with its uniform scale of energy efficiency classes, provides a clear indication of how each product affects energy consumption by comparison with similar products.

The EU Commission wants energy consumers to have a stronger position on the retail market. Thus, in future, consumers will be better able to compare energy supply contracts using independent sources of information – such as internet portals. In addition, private households will be more able to adjust their electricity consumption to take account of changes in price at different times of day. cep has assessed the individual measures.

In the context of increasing electricity generation based on renewable energy, the Commission puts forward its ideas for redesigning the European electricity markets. Thus support for renewable energy should follow a more market-based concept. The simple provision of reserve capacity will only be remunerated by way of capacity mechanisms in the exceptional case that electricity supply cannot be secured by the electricity market itself.

Many of the power plants currently still in the market will be shut down in the medium term due to their age. As, in addition, the incentive to invest in new secure power-plant capacity is low, due to low wholesale electricity prices, more and more Member States are starting to develop "capacity mechanisms" which provide extra remuneration for the provision of secure capacity.

The European Commission makes suggestions on how to speed up the construction of cross-border power lines. This is intended to implement the "electricity interconnection target", according to which the capacity of cross-border electricity interconnections with other Member States should constitute at least 10% of the domestic electricity generating capacity of every Member State.

The European Commission clarifies its Strategic Framework for an Energy Union and the associated climate and energy policy measures which it is planning for the coming years. It supports inter alia in this regard an expansion of cross-border gas infrastructure in the EU and tighter CO2 limits for motor vehicles.

Due to the one-sided dependence of many Central and Eastern European Member States of the EU on Russian gas imports, the options for joint gas purchasing from non-EU countries are currently discussed. This cepInput describes the economic impacts of mandatory as well as voluntary joint gas purchasing mechanisms in the EU and explains the legal preconditions for joint gas purchasing associations.

The European Council has agreed on the following key targets for the future climate and energy policy of the European Union for the period from 2021 to 2030: (1) to reduce the EU’s domestic greenhouse gas emissions by 40% relative to 1990 levels; (2) to increase the proportion of renewable energy to 27% of overall EU energy consumption; (3) to reduce projected energy consumption by 27%; (4) to increase the level in each Member State of electricity interconnections to other Member States to 15% of their installed production capacity.

By bringing infringement proceedings, the European Commission has increased the pressure on several Member States to transpose into national law the EU requirements for completion of the internal energy market. Member States will, in principle, refrain from state intervention in the internal energy market, with just a few exceptions – such as government support for renewable energy sources.

The European Commission used a "stress test" to examine the resilience of the European gas system and recommends measures which will have a positive impact on security of the gas supply in Europe. In particular, the Member States will cooperate to a greater extent on ensuring security of the gas supply.

The European Commission proposes measures to ensure a secure energy supply in the EU. It calls on the Member States to complete the internal energy market and protect critical infrastructures such as gas pipelines against the political influence of state-owned companies in non-EU countries. In addition, it considers voluntary demand aggregation in order to improve the negotiating position of individual EU energy importers with respect to energy exporters in non-EU countries.

The European Commission wants incentives for demand-side flexibility in electricity markets ("demand response") to be increased thereby contributing to network stability. For this purpose, electricity consumers will be increasingly offered variable real-time electricity tariffs. The Commission also points out, in connection with demand response, the required investment in network infrastructure and consumer concerns about data protection.

The European Commission reports on the trends in electricity and gas prices in the EU and the resulting impact on the international competitiveness of EU companies. It calls on Member States to ensure greater cost efficiency with regard to environmental and energy-policy measures so as to reduce taxes and levies and considers additional state measures to support energy efficiency.

The European Commission proposes new targets for 2030 for the reduction of greenhouse gas emissions and the development of renewable energy. An energy-efficiency target will not be discussed until autumn 2014 following the assessment of the Energy Efficiency Directive. Consultation will take place, in the framework of a new "governance structure", between the Commission and the Member States regarding the latter's plans for climate and energy policy.

Where the market is unable to secure adequate electricity generation, the Member States should, in the European Commission's view, be able to set up "capacity mechanisms" under certain conditions. These capacity mechanisms should meet certain criteria; they should, inter alia, be technology-neutral and accessible across borders. Beforehand, however, the Member States should firstly, assess whether there is in fact a shortfall in generation, secondly, identify and remove the causes for the shortfall of generation, and thirdly, evaluate which alternatives to capacity mechanisms could remove these shortfalls in generation, where appropriate.

With renewables taking up a growing share of energy production, the European Commission wants support for renewables to be carried out more competitively. For this purpose, feed-in tariffs should be largely replaced by feed-in premiums and quota models. Degressive elements of the support system should mean that overcompensation and distortions of competition are avoided. Support for existing installations should not be changed retrospectively.

The European Commission argues in favour of targeted support for CCS and puts various options up for discussion: subsidies for CCS investors, CO2 emission performance standards or a mandatory CCS certificate system for carbon emitters such as power stations and industrial plants.

The European Commission argues in favour of an early agreement on Climate and Energy Policy to 2030. The discussion centres on the question of the number and definition of targets and how these can be achieved, efficiently and effectively, taking account of competitiveness and security of supply.

The Commission announces measures to advance the completion of the internal energy market. For instance, it wishes to implement the Third Energy Package also through infringement proceedings. Moreover, it wishes to prevent Member States from applying capacity mechanisms as this would distort competition in the internal energy market.

The EU legal framework for promoting the use of renewable energies will expire in 2020. The European Commission now presents considerations - which are open-ended as regards their outcome – if and how the use of renewable energies should be encouraged beyond 2020. It will draw up guidelines to facilitate the cross-border trade with renewable energy and, if necessary, for an adjustment of the funding policies of Member States.

In order to keep global warming below 2°C, in comparison with 1990, the EU wishes to reduce greenhouse gas emissions by 20% by 2020 and by 80 to 95% by 2050. A major part of greenhouse gas emissions which can be influenced is created by the energy sector. The Energy Roadmap 2050 presents scenarios illustrating how modernisation can help contribute to the energy system of long-term EU climate protection targets.

According to the Commission, the EU needs to invest in energy infrastructure in order to achieve its energy and climate policy targets by 2020. To this end, the guidelines, which are proposed in the form of a Regulation, streamline and better coordinate national permit granting procedures for projects of common interest (PCIs).

The Commission proposes a Directive obliging both the public purse and companies to take efficiency-related measures. For instance, to annually renovate 3% of public buildings in an energy-efficient manner. Energy supply companies are be held statutorily liable for energy savings of their customers of 1.5%.

By means of modern information and communication technologies (ICT) “smart grids“ are to coordinate the behaviour of all grid users in order to ensure an economically efficient power system. The Commission wishes to draw up “appropriate measures” to expedite the set-up of such grids by the end of 2011.

EU Member States are pursuing the goal of increasing energy efficiency by saving 20% of the EU energy consumption projected for 2020. The Commission estimates that the set target will not be achieved through the current measures and therefore proposes additional actions. Amongst other things, it is considering energy savings by Member States.

According to the Commission, Member States can reach their target for the development of renewable energy by 2020. To this end, the Commission calls for a “greater convergence” of national support schemes in the EU and an increased cooperation among Member States and with third countries. Moreover, networks should be further developed, interconnected at cross-border level and modernised.

The proposed Regulation (“REMIT“) is to reinforce the integrity and transparency of wholesale energy markets for gas and electricity. To this end, insider trading and market manipulation is to be prohibited. Moreover, the markets are to be monitored by the EU energy agency ACER and by the national regulatory authorities and market participants’ data be collected. In doing so, national regulatory authorities and ACER are to cooperate with each other.

During the “energy summit” on 4 February 2011, the European Council will discuss the Commission’s “Energy Strategy 2020“ and its „concept for an integrated European energy network”. According to the Commission’s estimate approximately 1 trillion Euros must be invested in the EU energy system by 2020 in order to achieve the EU targets for renewable energies and energy efficiency and to develop the necessary energy infrastructure.

According to the Commission, the EU must urgently invest in outdated and poorly interconnected energy infrastructure in order to meet their energy policy and climate objectives by 2020. To this end, national approval procedures for projects of European interest are to be streamlined and better coordinated. The Commission announces to submit guidelines or a legislative proposal on cost allocation to address major or cross-border projects through tariff or investment rules in 2011.

The EU Energy Strategy 2020 is focusing on five „priorities“: (1) increase in energy efficiency, (2) building a “pan-European integrated energy market“, (3) consumer protection and safety and security standards, (4) further development of energy technologies and (5) strengthening the external dimension of the EU energy market.

The Commission criticises the current EU energy policy in that the internal energy market is still fragmented and the efforts by Member States to increase energy efficiency are “disappointing“. Moreover, there is a lack of energy system investments of EUR 1 trillion and technological progress.

The Commission promotes the expansion of the EU internal energy market and announces a legal framework for the safe storage of nuclear waste. The expansion of EU energy grids is to be better coordinated. The Commission wishes to promote technological innovation and initiate a shift towards a low-carbon energy system by 2020 through market-based instruments.

In order to attain independence from fossil fuels, the EU is planning to accelerate the development and introduction of various low carbon technologies with the help of the European Strategic Energy Technology Plan (“SET-Plan”). The Commission substantiates the strategic and technological targets, the planned measures and an estimation of how much private and public investment will be required for the research and development of low carbon technologies until 2020.

The proposed Regulation is to replace the existing Directive on the security of gas supply. The Proposal contains obligations of the Member States with respect to their infrastructure and the establishment of emergency plans. In times of crisis the Commission is to coordinate the gas supply.

According to the Commission the potential of liberalisation of the electricity and gas markets should be further tapped. Competitive solutions are to increasingly enjoy priority over price regulation. Moreover, the Commission is making statements on the frequency of supplier switching.

The Proposal by the Commission serves to recast the Directive on the energy performance of buildings. In future, when undergoing major renovations all buildings will have to comply with national minimum requirements for the energy performance of buildings. Member States are to set minimum requirements as to ensure that the total costs for the investment, maintenance and operation (incl. energy costs) of a building are minimised during its life-cycle. In addition, the energy performance of a building must be stated in all advertisements for sale or rent and the energy performance certificate must be shown to all prospective buyers or tenants.

The EU Commission proposes to revise the existing Directive on labelling the consumption of energy and other resources. Currently, the indication and labelling obligation is restricted to lighting sources and large household appliances. In future, any product the use of which is related to the consumption of energy and other relevant resources might be subject to the labelling obligation. This might, for instance, affect TVs, shower heads and windows. In addition, contracting authorities may no longer procure inefficient products according to the Commission.